Feds, Greater Bay reach agreement

BY DAVID SPEAKMAN

Greater Bay Bancorp, the valley’s largest, independent bank, faces a mid-July deadline to comply with Federal Reserve Board rules about risk management and money-laundering prevention. Financial analysts are at odds about how the greater scruntiny will affect the Palo Alto-based bank.

The bank (Nasdaq: GBBK), said on Jan. 15 it reached an agreement with the Federal Reserve to address the central bank’s concerns. GBBK has 180 days to prove it has the ability to cover its debts and prevent money laundering under the Bank Secrecy Act, which is more rigorous since the 2001 terrorist attacks.

GBBK, with nearly $8 billion in assets, has been criticized by some analysts as being overexposed to the lackluster regional real-estate market. The bank may have attracted the Fed’s attention by re-incorporating as a holding company Feb. 1, 2002.

In a written statement, GBBK’s CEO and president David Kalkbrenner downplayed any effects of the compliance process.

“We have already dedicated significant time and resources to addressing these items and expect to complete them in a timely manner,” he said. The bank declined further comment due to a U.S. Securities and Exchange Commission-mandated “quiet period” prior to its Jan. 22 earnings release.

Recently, the bank chose Kenneth Shannon as its chief risk officer, a new position created out of the regulatory concerns.

While some Wall Street analysts agree the bank likely will meet the deadline, they differ on the agreement’s likely effect.

“Put simply, adding regulatory scrutiny on top of stubbornly low, short-term rates and a stagnant É commercial real-estate market should reduce [GBBK’s] 2003 operating earnings below 2002 levels,” says Charlotte Chamberlain, an analyst with Jefferies & Co.

Joe Morford, an analyst for RBC Dain Rauscher Inc., offers a different view.

“All things considered, the issues appear fairly mild to us,” he says, explaining the bank’s fundamental indicators such as capital levels and reserves remain sound.

Morford says the biggest issues facing GBBK are related to the deterioration of the region’s commercial real-estate market, further cuts in interest rates and possible future regulatory restrictions.